ACIT Corporate Circle 6(2), CHENNAI V. Sugunakara Reddy, CHENNAI

ITA 2078/CHNY/2018

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9608 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 02-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Gift; Principle of natural justice; Fair market value

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , , $ BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NO. 2078/CHNY/2018 / ASSESSMENT YEAR : 2012-13 ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(2), AAYAKAR BHAVAN, NEW BLOCK, 7 TH FLOOR, 121 M.G. ROAD, CHENNAI 600 034. VS. SHRI SUGUNAKARA REDDY, MD OF M/S. SINSSON & MC CONCECHY (I) PVT LTD., NO. 1/1, KOTHARI ROAD, NUNGABAKKAM, CHENNAI 600 034. [PAN: AABPR 9638J] ( / APPELLANT) ( %&' /RESPONDENT ) REVENUE BY : SHRI. AR V SREEN IVASAN, JCIT ASSESSEE BY : SHRI. S. SRIDHAR, ADVOCATE . /DATE OF HEARING : 28.11.2018 . /DATE OF PRONOUNCEMENT : 28.11.2018 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THE REVENUE FILED THIS APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNAI IN ITA NO. 152/16-17/CIT(A)-15 DATED 27.03.2018 FOR ASSESSMENT YEAR 2012-13. :-2-: ITA NO. 2078/CHNY/2018 2. M/S. SUNGUNAKARA REDDY, THE ASSESSEE, PURCHASED A VILLA FROM M/S. AR FOUNDATIONS, A FIRM IN WHICH THE ASSESSEES SON IS THE MANAGING DIRECTOR. THE FIRM SOLD TWO VILLAS, ONE T O THE MANAGING PARTNERS FATHER (THE ASSESSEE) AND ANOTHER TO THE MANAGING PARTNERS SISTER (ASSESSEES DAUGHTER). THE AO MADE ADDITION S IN THE CASE OF THE FIRM M/S. AR FOUNDATIONS IN ASSESSMENT YEAR 201 2-13. AGGRIEVED, THE FIRM FILED APPEAL BEFORE THE CIT(A). THE LD. CIT(A) DELETED THE ADDITIONS IN THE HANDS OF THE FIRM BUT DIRECTED THE AO TO ASSESS THE DIFFERENCE BETWEEN THE FAIR MARKET VALUE AND THE SALE PRICE U/S. 56(1)(VII)(B) UNDER THE HEAD INCOME FRO M OTHER SOURCES IN THE HANDS OF THE BUYERS OF VILLAS. CONSEQUENTLY , THE AO REOPENED THE ASSESSEES CASE AND ASSESSED THE DIFFERENCE BET WEEN THE FAIR MARKET VALUE AND THE SALE PRICE U/S. 56(1)(VII)(B) IN THE ASSESSEES HANDS FOR ASSESSMENT YEAR 2012-13. AGGRIEVED AGAIN ST THAT ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). BEFORE THE LD. CIT(A), BASED ON THIS TRIBUNAL DECISION IN THE CASE OF M/S. AR FOUNDATIONS IN ASSESSMENT YEAR 2012-13 VIDE ITA NO. 183/MDS/2015 DATED 10.08.2017, THE ASSESSEE PLEADED THAT DIRECTI ONS OF THE LD. CIT(A) HAS BEEN SET ASIDE BY THE HONBLE ITAT ON BO TH MERITS AND JURISDICTION. THE LD. CIT(A) AFTER GOING THROUGH T HE TRIBUNAL DECISION HELD THAT THE DIRECTIONS ISSUED BY THE LD. CIT(A) I N THE FIRMS CASE HAS BEEN SET ASIDE BOTH ON MERITS AND JURISDICTION AND IN FAVOUR OF THE :-3-: ITA NO. 2078/CHNY/2018 ASSESSEE. RESPECTFULLY FOLLOWING SUCH DECISION, TH E LD. CIT(A) DIRECTED THE AO TO DELETE THE ADDITION AND THUS ALL OWED THE APPEAL. 3. AGGRIEVED, THE REVENUE FILED THIS APPEAL WITH TH E FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO THE LAW AND FACTS OF THE CASE. 2. THE LD. CIT(A) ERRED IN DELETING THE ADDITION MA DE BY THE ASSESSING OFFICER U/S 56(1)(VII). 2.1. THE LD.CIT(A) RELIED UPON THE DECISION OF THE HONBLE ITATS ORDER IN ITA NO.1873/MDS/ 2015 DT: 10.08.2017 FOR THE AY 2012-13 IN THE CASE OF M/S. A.R. FOUNDATIONS OBSERVING THAT SALE O F VILLAS AT A LOWER PRICE TO PARTNERS/ DIRECTORS CANNOT BE CONSTRUED AS GIFT TO RELATIVES AND THE SAME HAS NOT REACHED FINALITY. 2.2 THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT T HAT CLAUSE (VII)(B) OF SUB SEC.(1) OF SEC.56 SEEKS TO TAX THE DIFFERENC E IN CONSIDERATION AND FMV DURING TRANSFER OF ANY IMMOVABLE PROPERTY T O AN INDIVIDUAL / HUF FROM ANY PERSON/PERSONS. 3.1 THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE C LAUSE (VII)(B) OF SUB SEC.(1) OF SEC.56 IS APPLICABLE TO EVERY PERSON WITH THE EXCEPTION OF A RELATIVE. 3.2 THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE T RANSFER OF IMMOVABLE PROPERTY IS FROM A SEPARATE LEGAL ENTITY WHOSE DIRECTOR IS THE SON OF THE TRANSFEREE. 4 FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED A T THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS) BE SET ASIDE AND THAT OF THE ASSESSING OF FICER BE RESTORED. THE LD. DR PRESENTED THE CASE ON THE LINES OF THE G ROUNDS OF APPEAL. PER CONTRA, THE LD. AR SUPPORTED THE ORDER OF THE L D. CIT(A), RELYING :-4-: ITA NO. 2078/CHNY/2018 ON THE DECISION OF THIS TRIBUNAL IN ITA NO. 1873/MD S/2015 DATED 10.08.2017, SUPRA. 4. WE HEARD THE RIVAL SUBMISSIONS. THE RELEVANT PO RTION OF THE ORDER, SUPRA, IS EXTRACTED AS UNDER: 5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS A PARTNERSHIP FIRM, ENGAGED IN THE BUSI NESS OF CIVIL CONSTRUCTION. THE ASSESSEE-FIRM CONSTRUCTED AMARA SAMUDRA PROJECT IN THE LAND BELONGS TO THE MANAGING PARTNER, MR.P.A MARANATHA REDDY. THE ASSESSEE CONSTRUCTED SEVEN VILLAS, FOUR VILLAS WERE SOLD AT A COST RANGING ` 3.5 CRORES TO ` 8.40 CRORES, TWO VILLAS WERE SOLD TO MANAGING PARTNERS SISTER AND FATHER @ ` 2 CRROES PER VILLA. THE ASSESSEE VALUED THE UNSOLD THE VILLA AT ` 3.50 CRORES. THE ASSESSING OFFICER FOUND THAT THE VILLAS SOLD TO MANAGING PARTNERS SISTER AND FA THER WAS LESSER THAN THE COST PRICE. SO, THE BOOKS OF ACCOUNT DO NOT REF LECT THE CORRECT PICTURE. ACCORDINGLY, ASSESSING OFFICER REJECTED T HE SAME. ON APPEAL BY THE ASSESSEE, THE LD.CIT(A) FOUND THAT THE AO RE JECTED THE BOOKS OF ACCOUNT WITHOUT MAKING ANY PROPER ENQUIRY. THERE FORE, THE RATE ADOPTED IN BOOKS OF ACCOUNT NEEDS TO BE APPLIED TO THE VILLAS SOLD TO THE RELATIVE ALSO. THE LD.CIT(A) FOUND THAT THE SAL E CONSIDERATION RECEIVED FROM THE CLOSE RELATIVE OF THE MANAGING PA RTNER WAS INADEQUATE. THE LD.CIT(A) FURTHER FOUND THAT PROVIS O TO SECTION 40A(2)(B) OF THE ACT WERE NOT ENFORCEABLE, SINCE TH E EXCESS EXPENDITURE WAS NOT PAID TO THE PERSONS REFERRED TO IN SEC.40A(2)(B) OF THE ACT. HOWEVER, THE DIFFERENCE OF AMOUNT AS WORK ED OUT TO THE EXTENT OF ` 2,58,22,504/- HAS TO BE TREATED AS GIFT TO THE MANA GING PARTNERS SISTER AND FATHER. ACCORDINGLY, THE LD.C IT(A) DIRECTED THE ASSESSING OFFICER OF SMT.ANURADHA REDDY AND SHRI S UGANAKARA REDDY TO RE-OPEN THEIR ASSESSMENT FOR ASSESSMENT YEAR 20 12-13 AND ASSESS THE DIFFERENCE UNDER THE HEAD INCOME FROM OTHER SOU RCES. THE :-5-: ITA NO. 2078/CHNY/2018 QUESTION ARISE FOR OUR CONSIDERATION IS WHETHER THE LD.CIT(A) CAN DIRECT THE ASSESSING OFFICERS OF OTHER ASSESSEE, WHO ARE N OT BEFORE HIM TO REOPEN THE ASSESSMENT. THIS TRIBUNAL IS OF THE CON SIDERED OPINION THAT THE LD.CIT(A) BEING THE APPELLATE AUTHORITY HAS TO CONFINE HIMSELF TO THE ASSESSMENT YEAR UNDER CONSIDERATION BEFORE HIM AND ALSO THE PARTIES TO THE LITIGATION BEFORE HIM. WITHOUT HEARI NG THE ASSESSEE, OR THE ASSESSING OFFICER OF THE THIRD PARTIES, THE LD. CIT(A) CANNOT GIVE ANY DIRECTION. AS HELD BY THE JURISDICTIONAL HIGH C OURT IN THE CASE OF CIT VS. T.A.KRISHNASWAMY (SUPRA), THE APPELLATE AUT HORITY CANNOT EXCEED THEIR POWERS WHILE EXERCISING THEIR JURISDIC TION VESTED UNDER THE STATUTE. IN THIS CASE, THE LD.CIT(A) HAS EXCEEDED HIS JURISDICTION IN DIRECTING THE ASSESSING OFFICER, WHO IS NOT BEFORE HIM AND ALSO TO ASSESS THE INCOME IN THE HANDS OF SHRI SUGANAKARA R EDDY AND SMT.ANURADHA REDDY. BOTH OF THEM ARE NOT A PARTY BE FORE THE LD.CIT(A). THEREFORE, THE DIRECTION OF THE LD.CIT(A ) IS A CLEAR VIOLATION OF PRINCIPLE OF NATURAL JUSTICE AND EXCEEDED HIS J URISDICTION. 6. MOREOVER, THE ASSESSEE IS A PARTNERSHIP FIRM. E VEN THOUGH PARTNERSHIP FIRM HAS NO STATUTORY EXISTENCE UNDER T HE COMMON LAW, IT IS AN INDEPENDENT ASSESSABLE UNIT UNDER THE INCOME- TAX ACT. THEREFORE, WHEN THE PARTNERSHIP FIRM SOLD THE VILLA S AT A PRICE LESSER THAN THE ACTUAL COST, IT CANNOT BE CONSTRUED AS THE MANAGING PARTNER GIFTED SOMETHING TO HIS CLOSE RELATIVES. THERE MAY BE VARIOUS REASONS FOR A BUSINESSMAN TO SELL THE FLAT/VILLA AT LOWER P RICE. ONE OF THE REASONS, THERE MAY NOT BE ANY DEMAND IN THE MARKET. MOREOVER, THERE MAY BE A PRESSURE FOR REPAYMENT OF BORROWED L OAN. THEREFORE, IN ORDER TO MEET THE EXPENDITURE AND TO RE-PAY THE BOR ROWED FUNDS, THE ASSESSEE, PARTNERSHIP FIRM MIGHT HAVE SOLD THE VILL A LESSER THAN THE ACTUAL COST. WITHOUT EXAMINING THOSE DETAILS AND R EASONS, ONE CANNOT SAY THAT THE ASSESSEES MANAGING PARTNER GIFTED SOM ETHING TO HIS CLOSE RELATIVES. THE VERY FACT THAT ONE OF THE VILLAS RE MAINS UNSOLD, EVEN AT THE YEAR END, SHOWS THAT THERE WAS NO TAKER FOR THE REMAINING VILLA. THEREFORE, THERE MAY BE COMPELLING REASONS ON THE P ART OF THE ASSESSEE, PARTNERSHIP FIRM TO SELL THE VILLAS AT A PRICE LESSER THAN THE ACTUAL COST. :-6-: ITA NO. 2078/CHNY/2018 7. IN VIEW OF THE ABOVE, WE ARE UNABLE TO UPHOLD T HE ORDER OF THE LD.CIT(A) TO RE-OPEN THE ASSESSMENT OF SMT.ANURADH A REDDY AND SHRI SUGANAKARA REDDY, AND TO ASSESS THE DIFFERENCE AMOU NT IN THE HANDS OF SMT.ANURADHA REDDY AND SHRI SUGANAKARA REDDY. AC CORDINGLY, THE ORDER/DIRECTION OF THE LD.CIT(A) TO REOPEN THE ASSE SSMENT OF SHRI SUGANAKARA REDDY AND SMT.ANURADHA REDDY IS DELETED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAND S ALLOWED. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A), WHEN HE FOLLOWED THE JURIS DICTIONAL ITAT DECISION, WHEREIN, THE DIRECTIONS ISSUED BY THE LD. CIT(A) HAS BEEN SET ASIDE BY THIS HONBLE ITAT BOTH ON MERITS AND J URISDICTION, SUPRA. HENCE, THE REVENUES APPEAL IS DISMISSED. 5. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH NOVEMBER, 2018 AT CHENNAI. SD/- ( ) (GEORGE MATHAN) ! /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ! /ACCOUNTANT MEMBER /CHENNAI, 3 /DATED: 28 TH NOVEMBER, 2018 JPV .%5676 /COPY TO: 1. '/ APPELLANT 2. %&' /RESPONDENT 3. 9 ) (/CIT(A) 4. 9 /CIT 5. 6% /DR 6. /GF